Stan­dard Pa­cific, Ry­land Group agree to merger


Stan­dard Pa­cific Corp. and Ry­land Group Inc. have agreed to merge in an all-stock trans­ac­tion that will cre­ate a sin­gle home­builder with op­er­a­tions in 17 states.

The merger marks the first big move to­ward con­sol­i­da­tion among the ma­jor pub­licly traded home­builders in years and comes as the U.S. hous­ing mar­ket con­tin­ues to grad­u­ally re­gain its foot­ing af­ter years in a deep slump.

The two Cal­i­for­nia-based home­builders said late Sun­day that their boards of di­rec­tors unan­i­mously agreed to go for­ward with “a merger of equals” that would form a com­pany with an eq­uity mar­ket cap­i­tal­iza­tion of about US$5.2 bil­lion.

Ry­land was the fifth-ranked U.S. home­builder last year, based on home clos­ings, while Stan­dard Pa­cific was 11th, ac­cord­ing to Builder mag­a­zine. To­gether, the builders ac­counted for 12,633 home clos­ings last year, which would make the com­bined com­pany the fourth­biggest builder. The top three are D.R. Hor­ton, Len­nar Corp. and Pul­teGroup.

Ex­ec­u­tives at Stan­dard Pa­cific and Ry­land said the merger will cre­ate a com­pany that can sell homes po­ten­tially to a broader ar­ray of buy­ers. The new com­pany would also own or con­trol roughly 74,000 land parcels for homes.

“We be­lieve we’re in the mid­dle innings of the home­build­ing cy­cle,” Scott Stowell, CEO and pres­i­dent of Stan­dard Pa­cific Homes, said in an in­ter­view. “We’re able to in­te­grate the com­pany, po­si­tion it with ap­prox­i­mately 540 ac­tive sell­ing com­mu­ni­ties, so that we can fully cap­i­tal­ize on the hous­ing mar­ket re­cov­ery.”

Stan­dard Pa­cific sells homes in Cal­i­for­nia, Ari­zona, Colorado, Texas, Florida and the Caroli­nas and caters pri­mar­ily to move-up buy­ers, or home­own­ers look­ing to sell their home and buy a new one. Ry­land Group sells homes in 17 states and builds homes aimed to ev­ery­one from first-time home­buy­ers to high-end homes.

“It seems to be a good fit,” said Alex Bar­ron, pres­i­dent and founder of Hous­ing Re­search Cen­ter, an in­de­pen­dent eq­uity firm in El Paso, Texas. “There are some ad­van­tages po­ten­tially in terms of cost of la­bor, cost of ma­te­ri­als, if you’re per­ceived to be a big­ger builder.”

Job gains over the past year have put home­buy­ers in a stronger fi­nan­cial po­si­tion, which has helped drive sales of new homes this year. Through the first four months, sales of new U.S. homes were run­ning 23.7 per­cent higher than in the same pe­riod last year.

Home­builders have ben­e­fited from a tight sup­ply of avail­able homes for sale, which have driven home prices higher. Over the past 12 months, the me­dian sales price for new homes has risen 8.3 per­cent to US$297,300.

In April, new home

sales climbed 6.8 per­cent to a sea­son­ally ad­justed an­nual rate of 517,000. Still, sales re­main be­low the 700,000 pace that econ­o­mist say in­di­cates a healthy mar­ket.

“We’re in the early stages of re­cov­ery, so we’re look­ing for that slow, steady growth,” said Larry Ni­chol­son, Ry­land’s pres­i­dent and chief ex­ec­u­tive. “We see the op­por­tu­nity to put the two (com­pa­nies) to­gether, strengthen our mar­ket po­si­tions, take some costs out of the busi­ness, put more money to the bot­tom line, be­come a much more ef­fi­cient or­ga­ni­za­tion, while con­tin­u­ing to grow it, which gives you a lot of benefits in the mar­ket.”

Ry­land and Stan­dard Pa­cific es­ti­mate that the merger could re­sult in an­nual cost sav­ings of US$50 mil­lion to US$70 mil­lion for the new com­pany. A sig­nif­i­cant amount of those sav­ings could be reaped by late next year, the com­pa­nies said.

The ex­ec­u­tives de­clined to say how many jobs could be elim­i­nated as a re­sult of the merger.

Un­der the terms of the merger, Stan­dard Pa­cific will con­duct a 1 for 5 re­verse stock split. Af­ter­ward, Ry­land share­hold­ers will re­ceive 1.0191 shares of Stan­dard Pa­cific stock in ex­change for each Ry­land share.

Stan­dard Pa­cific share­hold­ers will end up with about 59 per­cent own­er­ship of the com­bined com­pany, while Ry­land share­hold­ers own 41 per­cent.

Ni­chol­son would be­come CEO and pres­i­dent of the com­bined com­pany, which will op­er­ate un­der a new name to be dis­closed once the merger is com­plete. Stowell will be­come ex­ec­u­tive chair­man of the new com­pany’s 10-mem­ber board, which will be split be­tween board mem­bers from Stan­dard Pa­cific and Ry­land.

The deal, which must be ap­proved by share­hold­ers and clear any reg­u­la­tory hur­dles, is ex­pected to close in the fall.

The com­pa­nies were sched­uled to con­duct a con­fer­ence call with an­a­lysts early Mon­day.

Shares in Ry­land Group are up about 11 per­cent this year, while Stan­dard Pa­cific is up 14.7 per­cent.

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